trade in financial instruments on the regulated market and in the alternative trading system:

trade in shares and other equity instruments on the Main Market and on the NewConnect market,

trade in derivatives on the Main Market,

trade in debt instruments on the Catalyst market organised by GPW and BondSpot and on Treasury BondSpot Poland (TBSP),

listing, including introduction to trading and listing of financial instruments,

information services including data from the financial and commodity markets.

TRADING

Trading encompasses trade in financial instruments on the Main Market and on GPW regulated markets NewConnect and Catalyst, and on Treasury BondSpot Poland.

Financial instruments in trading on the GPW Group financial markets

STOCK MARKET

The total value of trade in shares on the electronic order book (EOB) on the GPW Main Market was PLN 189.6 billion in 2016, a decrease of 6.8% year on year. The average daily value of trade on the was PLN 755.6 million, a decrease of 6.8% year on year. The number of transactions was 17.6 million, an increase of 6.4% year on year. The value of trade increased particularly in Q3 and Q4 2016. The value of trade in shares on the electronic order book on the GPW Main Market in Q4 2016 was PLN 55.3 billion, the highest figure since Q1 2014.

Value of trade in shares on the Main Market [PLN billion]

The value of trade on NewConnect decreased in 2016. The value of trade in shares on the electronic order book was PLN 1,198 million, a decrease of 30.5% year on year; the value of block trades decreased by 28.1% year on year to PLN 163 million. The number of transactions on the electronic order book was 858 thousand in 2015, a decrease of 22.0% year on year.

Value of trade in shares on NewConnect [PLN million]

The turnover in equities on the GPW markets in 2016 was largely impacted by local drivers: the uncertainty associated with the further reform of the pension funds, the introduction of a bank tax and its impact on the banking sector and the issue of a possible conversion of mortgage loans denominated in CHF and the potential impact on the banking sector which is strongly represented on the Stock Exchange and in the WIG20 index. The negative impact on the situation on the stock market were also issues of a global nature. Particularly noteworthy impact of Brexit, elections in the US but also the general reluctance of investors to invest in assets from emerging markets due to, among others, an increase in the debt of these economies in foreign currencies due to the strong appreciation of the USD. Since Q3 2016 the situation has improved particularly among foreign investors, who have returned to the market and thus contributed to the growing turnover on the stock market, particularly in the bluechips segment.

Capitalisation of domestic and foreign companies on the Main Market [PLN billion]

The capitalisation of domestic companies listed on the Main Market was PLN 557.1 billion at the end of 2016 compared to PLN 516.8 billion at the end of 2015 (an increase of 7.8%). Velocity increased starting in Q2 2016 and reached 41.1% in Q4 2016, the highest figure since Q2 2013.

Turnover in shares on the Main Market [PLN billion] and velocity [%]

This was driven by many efforts launched to attract investors to the GPW markets and to build up liquidity. ABM Amro Clearing, KDPW_CCP’s first foreign clearing member, started operation on GPW in May 2016, which opened the prospect of acquiring new foreign clients active in electronic trading whose presence on GPW depended on the availability of clearing from ABN Amro Clearing. GPW implemented many projects in 2016 to develop its infrastructure and make it more accessible to global traders. These include the colocation service and the supporting functionalities: remote hands and precision time protocol, which provide technologically advanced trading opportunities to GPW clients.

A new Independent Software Provider (ISV) was acquired in 2016, and GPW is currently negotiating with another ISV, the first potential provider of software for professional derivatives traders in Poland. A new External Administrator was acquired in Q1 2016, responsible for technical market access services for Exchange Members.

The HVP and HVF programmes were modified in 2016 and the price promotions under the programmes were extended for another year. HVP and HVF are special promotion programmes dedicated to active investors in equities and derivatives:

High Volume Provider (HVP) programme is addressed to entities which invest on own account only. Launched by GPW in November 2013, it offers promotional fees to those investors who generate at least PLN 5 million of trade in equities per session on the stock market or 150 thousand futures and options on the derivatives market. In addition, as of 1 July 2016, GPW introduced a new price list on the Main Market for stock market makers and participants of the High Volume Provider programme which promotes passive orders building up the order book. Thus, GPW follows international trends of exchange prices to create the best possible conditions for the execution of orders of individual and institutional investors. The new price list offers very attractive low transaction fees for professional market players participating in the building of the order book. The new transaction fees for market players placing buy and sell “maker” orders (which remain on the order book) are much lower than for buy and sell “taker” orders (which hit other orders on the order book). The new price list is optional so market makers of shares and participants of the HVP programme may use it or continue with the existing price list and promotions.

High Volume Funds (HVF) Programme: the programme was addressed to investment funds which actively trade in shares or derivatives on GPW. It was launched in July 2015. Similar to HVP, it is a fee promotion for those funds which generate daily trade in shares exceeding PLN 5 million or 150 futures and options on the derivatives market. The condition of generating average turnover at PLN 5 million on the cash market was waived until the end of March 2017. The velocity ratio of a fund, calculated as the turnover generated within three months to the fund’s net asset value, should be at least 200 percent per month. The formula was changed from a one-month to a three-month volume.

Both these programmes on the cash and derivatives markets jointly had 7 participants in 2016, which generated 10.2% of the value of trade in shares on the electronic order book; in the best months, their share in trade in equity trade was 12%.

Seven new exchange members (Flow Traders, SUN Trading, Spire Europe, Q Securities, ING Bank, mBank and Alior) were admitted or started operation on the exchange in 2016, which also helped to improve liquidity.

The demanding market environment is coupled with growing volatility. After very low volatility in 2014, it improved in 2015 and 2016, driving the activity of investors on the exchange.

Annual volatility of WIG and WIG20

In addition to the trading fee promotions under the HVP and HVF programmes, GPW trading participants benefited from other fee reductions as well. As of 1 January 2016, all market participants were eligible for reduced fixed fees on the value of an order up to PLN 100 thousand for orders on the cash market (reduced from PLN 0.33% to PLN 0.29%). The fee reduction was offered as a promotion without a fixed deadline on the Main Market and NewConnect. It followed the reduction of GPW’s fees paid to the Polish Financial Supervision Authority and was offered to share a part of the savings with capital market participant. The structure of the fee reduction implemented on 1 January 2016 was consulted by GPW with the Chamber of Brokerage Houses.

The fee on market maker transactions in shares other than WIG20 shares (small and mid-caps) was reduced to zero and the promotion was extended in 2016. At the request of GPW, KDPW_CCP waived market maker fees on transactions in shares other than WIG20 shares within that period. The market maker promotion was extended by GPW and KDPW_CCP until the end of March 2017.

Under the maker-taker price list introduced as of 1 July 2016, the fees on orders in WIG20 stocks for HVP programme participants and stock market makers are PLN 0.02 for buy and sell maker orders and PLN 0.01 for buy and sell taker orders. The fees for orders in non-WIG20 stocks are PLN 0.02 for buy and sell maker orders and PLN 0.01 for buy and sell taker orders for HVP programme participants. The fees for non-WIG20 stock orders of stock market makers are PLN 0.01 for maker orders and PLN 0.06 for taker orders.

In 2016, as part of the Exchange’s educational initiatives, GPW launched the “Ambassador” programme dedicated to the staff of Poland’s top 20 banks. The programme aims to improve the qualifications of selected employees through training and meetings devoted to the capital market, followed by cascading of knowledge about investing on the exchange in relations with retail clients.

Number of structured products, investment certificates, ETFs and warrants

As at 31 December (#)

2016

2015

2014

2013

2012

Structured products (certificates)

784

702

744

550

327

Structured products (bonds)

0

0

4

7

16

Investment certificates

37

30

31

37

58

ETFs

3

3

3

3

3

Warrants

0

0

76

72

68

In total, GPW listed 784 structured products, 37 investment certificates and 3 ETFs at the end of 2016, and the total value of trade in these instruments was PLN 1.1 billion in 2016, an increase of 6.1% year on year. Structured products had the biggest share in total trade (77.8%), followed by ETFs (16.3%).

DERIVATIVES MARKET

The Warsaw Stock Exchange operates the biggest derivatives market in Central and Eastern Europe. WIG20 futures have for years been the most liquid instrument that generates the highest volume of trading on GPW, representing 58.7% of the volume of trade in all derivatives in 2016 (54.1% in 2015, 63.7% in 2014, 65.4% in 2013, 80.1% in 2012).

Single-stock futures attract growing interest of investors (they accounted for 19.3% of the total volume in 2016), as do currency futures (15.8% of the volume in 2016). Trade in single-stock futures increased by 48.5% year on year. Interest rate futures also attract growing investor interest and the volume of trade increased by 218.5%.

Six new single-stock futures were introduced to trading in 2016 on stocks listed on the Main Market. The futures on Eurocash S.A. were introduced to trading on 1 March 2016; the other five futures on the stock of Grupa Azoty S.A., ING Bank Śląski S.A., Ciech S.A., mBank S.A., Kruk S.A. were introduced to trading on 19 September 2016. After the addition of the six new instruments, GPW lists 33 single-stock futures. The multiplier is 100 or 1,000 depending on the contract, which means that one contract corresponds to 100 or 1,000 shares. The futures value is equal to the contract price times the multiplier.

GBP futures were introduced to trading on 21 November 2016. GBP/PLN is the fourth currency pair available for trading. The other instruments are USD/PLN, EUR/PLN and CHF/PLN. The introduction of new futures to trading on the exchange is a part of GPW’s policy of expanding the product offer addressed to investors.

Structure of volume of trade in derivatives in 2016 by category of instrument

The volume of trade in WIG20 futures was 4.7 million instruments in 2016, an increase of 5.4% year on year. As a result, the total volume of trade in derivatives was 8.0 million instruments in 2016, a decrease of 2.8% year on year. The number of open interest was 165.0 thousand as at 31 December 2016, an increase of 58.3% year on year.

The activity of investors on the derivatives market is largely driven by the volume of trade on the underlying instrument market but it is even more sensitive to volatility than investor activity on the cash market.

Similar to the cash market, GPW supports the liquidity of trade in derivatives by offering trading fee reductions and promotions. The following promotion fees for trading in futures introduced as of 1 January 2013 were extended in 2016:

reduction of the fixed fee on index futures from PLN 1.70 to PLN 1.60;

reduction of fees for day trading in futures on the electronic order book (excluding transactions on the account of a market maker and transactions on own account of an exchange member);

reduced fees for transactions in futures on own account of brokers.

In 2016, GPW continued to offer promotions for fees on market maker trade in WIG20 futures. As a condition of the promotion, market makers needed to generate a certain volume of trade. The promotion is available until 31 March 2017. Furthermore, the fee charged from exchange members for trade in bond futures and WIBOR futures was reduced to zero from 1 November 2014 to 31 December 2016. The promotion was extended until the end of June 2017.

Liquidity on GPW’s financial derivatives market was additionally supported by the HVP and HVF programmes which continued in 2016. The share of programme participants in the volume of trade in derivatives on GPW in 2016 was 7% for index futures and 3% for single-stock futures.

DEBT MARKET

The GPW Group offers trade in debt instruments on Catalyst, which is comprised of regulated and alternative trading systems operated on the trading platforms of GPW and BondSpot. The following instruments are traded on Catalyst:

corporate bonds;

municipal bonds;

co-operative bank bonds;

covered bonds;

Treasury bonds.

Structure of trade on Catalyst (EOB and block trades) in 2016 by instrument

The value of trade in non-Treasury instruments on the electronic order book on the markets operated within Catalyst was PLN 1,377 million in 2016 as compared to PLN 1,554 million in 2015 (a decrease of 11.4%), and the value of block trades was PLN 770 million in 2016 as compared to PLN 359 million in 2015. The total value of trade in non-Treasury and Treasury instruments on Catalyst was PLN 3,131 million in 2016 as compared to PLN 2,522 million in 2015, representing an increase of 24.2%.

Value of trade on Catalyst, EOB and block trades [PLN million]

Outstanding non-Treasury bonds to GDP [%]

Source: BIS (non-Treasury bonds as at the end of H1 2016), IMF (GDP at the end of October 2016)

Catalyst activation and promotion initiatives addressed to local governments and companies intensified in 2016. GPW was a partner of conferences dedicated to education on the Polish debt market including the Local Government Forum of Capital and Finance in Katowice and the SME Forum in October 2016 in Katowice.

TREASURY BONDSPOT POLAND

Treasury BondSpot Poland (TBSP) operated by BondSpot S.A. is an integral part of the Treasury Securities Dealer system operated by the Ministry of Finance with the support of the National Bank of Poland and the banking industry. The main objective of the system is to minimise the cost of public debt by improving liquidity, transparency and effectiveness of the Treasury securities market. TBSP includes a market of cash transactions and a market of conditional transactions (repo).

TBSP offers trade in Treasury securities (Treasury bonds and bills). TBSP listed 32 series of Treasury bonds only with a nominal value of PLN 576.2 billion at the end of 2016. TBSP also offers trade in EUR Treasury bonds. The market listed 17 series of EUR Treasury bonds with a nominal value of EUR 30.9 billion at the end of 2016.

In January 2016, Treasury BondSpot Poland was once again selected by banks holding the status of Treasury Securities Dealers and approved by the Minister of Finance as the electronic market within the Treasury Securities Dealer System for another three periods (from 1 October 2016 to 30 September 2019).

Treasury BondSpot Poland held 251 trading sessions in 2016. The total number of transactions was 19.151 thousand. The total value of trade was PLN 412.8 billion, a decrease of 31.1% year on year. The share of cash transactions and conditional transactions in total trade was 61.6% and 38.4%, respectively, in 2016.

Value of trade on Treasury BondSpot Poland [PLN billion]

The value of cash transactions in PLN instruments was PLN 254.5 billion in 2016, a decrease of 2.4% year on year. The value of conditional transactions was PLN 158.3 billion in 2016, a decrease of 53.3% year on year.

In 2016, the local bond market was under an increased impact of capital flows driven by the activity of the biggest central banks. On the one hand, FED changed its monetary policy; on the other hand, ECB and the Bank of Japan continued quantitative easing in order to stimulate growth and prevent deflation. These measures impacted interest rates and bond prices on the leading markets, affecting yields and prices on the local market.

The key events which impacted the international financial markets and indirectly also the local market included the outcome of the UK vote in the referendum on leaving the UE (Brexit) and the outcome of the US Presidential election. The prices of Polish bonds were also driven by local factors including the end of several months of deflation and the resulting increased expectations of a future change in the monetary policy, S&P’s downgrade of Poland’s credit rating, and plans of future changes in the pension fund system. The activity of participants of the Treasury securities market, especially repo trade, was indirectly impacted by the introduction of a tax on bank assets effective as of the beginning of February 2016. Given the structure of the tax combined with a large overliquidity of the banking industry, banks were disinterested in repo and sell/buy back transactions so their value in the interbank segment dropped considerably.

As at the end of 2016, TBSP had 33 market participants (banks, credit institutions, investment firms), including:

7 institutional investors (2 on the institutional cash market, 5 on the cash and conditional market, 1 on the cash market).

LISTING

Listing encompasses admission and introduction to exchange trading and listing of securities on the markets organised and operated by the GPW Group.

GPW listed 893 companies at the end of 2016 (487 companies on the Main Market and 406 on NewConnect), including 61 foreign issuers (905 listings including 64 foreign issuers at the end of 2015).

Number of domestic and foreign companies – Main Market

Number of domestic and foreign companies - NewConnect

The total capitalisation of domestic and foreign companies on GPW’s two equity markets was PLN 1,126 billion at the end of 2016 compared to PLN 1,092 billion at the end of 2015. The change of capitalisation was different in different sectors. The biggest year-on-year decrease of capitalisation was reported in the pharmaceutical industry (down by PLN 71.0 billion), the developer sector (down by PLN 24.9 billion) and wholesale trade (down by PLN 14.9 billion). The biggest increase of capitalisation in 2016 was reported by the fuel industry (up by PLN 80.0 billion).

Change of capitalisation of domestic companies in 2016 by sector [PLN million]

Capitalisation of domestic and foreign companies – Main Market and NewConnect [PLN billion]

There were 35 IPOs on GPW’s two stock markets in 2016 (including 7 companies which transferred from NewConnect to the Main Market), compared to 49 IPOs in 2015. The total value of IPOs on the two stock markets was PLN 1.1 billion and the value of SPOs was PLN 40.0 billion in 2016.

In 2016, GPW implemented a range of initiatives supporting Polish companies and local governments in raising capital on the market. In 2016, GPW continued the “Capital for Growth” initiated in 2015 but did so in a new format of one-on-one meetings with companies interested in raising capital on the exchange. This allows GPW to source necessary information and to raise awareness of the benefits of raising capital on the exchange. GPW is also involved in activities which activate and promote the Polish exchange market among investors. The conference series “Polish Capital Market Days” took place once again in 2016. GPW entered into a cooperation agreement with Haitong Bank to exchange information about the capital markets in support of their growth. A similar agreement was signed with the Association of Chinese Financial Institutions in Hong Kong. In October 2016, GPW signed a memorandum of understanding to create a Polish-Belarussian IPO Centre. The objective is to establish a professional education, consultation and legal advisory centre facilitating the access of Belarussian companies to financing via the Polish capital market.

Value of IPOs and SPOs – Main Market and NewConnect [PLN billion]

The number of IPOs both on the Main Market and NewConnect grew less dynamically 2016. There were 16 IPOs on NewConnect, compared to 19 IPOs in 2015. Seven issuers transferred from the alternative market to the Main Market. With 406 listings (including 8 foreign companies), the capitalisation of NewConnect was PLN 9.8 billion at the end of 2016.

The nominal value of non-Treasury debt listed on Catalyst was PLN 81.8 billion at the end of 2016, an increase of 17.5% year on year. Catalyst listed 525 series of non-Treasury debt instruments at the end of 2016. Issuers whose instruments were listed at the end of 2016 included 18 local governments, 133 enterprises and 21 co-operative banks. Including the State Treasury, the number of issuers on Catalyst was 176 at the end of 2016, compared to 192 at the end of 2015. The total nominal value of non-Treasury and Treasury debt instruments listed on Catalyst was PLN 707.4 billion at the end of 2016, as compared to PLN 613.1 billion at the end of 2015.

INFORMATION SERVICES

GPW collects, processes and sells market data from all of the markets operated by the GPW Group. The status of GPW as the original source of information on trading and its strong brand and diversified business activity within the GPW Group enable the Company to successfully reach various groups of market participants with advanced information adjusted to individual needs.

The main clients using information provided by GPW are specialised data vendors who deliver the data made available by the Company in real time to investors and other market participants. Amongst the vendors there are information agencies, investment firms, internet portals, IT companies and other entities.

As at 31 December 2016, the Company’s information services clients were 51 data vendors, including 27 domestic and 24 foreign ones, with nearly 224.6 thousand subscribers (including 14.3 thousand subscribers using professional data feeds). At the end of 2016, GPW had data vendors in such countries as the United Kingdom, the USA, France, Germany, Switzerland, Denmark, Norway, Ireland, the Netherlands, and Cyprus.

In 2016, GPW launched a new policy of selling market data; as a result of focused efforts, GPW attracted 43 new clients for non-display data (used in algorithmic trading, risk management, portfolio valuation, and other non-display applications). The sales of licences for use of non-display data were the main driver of growth in this business line in 2016.

The sale of POLPX data also developed. In 2016, POLPX acquired the first industry data vendor who specialises in processing and distribution of commodity market data: the Norwegian company Montel.

Number of data vendors and subscribers, as at 31 December

2016

2015

2014

2013

2012

Number of real-time data vendors

51

54

58

58

58

- local

27

30

31

34

37

- foreign

24

24

27

24

21

Number of real-time data subscribers (thousand)

224.6

221.1

240.3

261.9

288.1

- number of subscribers using professional data feeds

14.3

15

15.1

16.2

16.3

Number of companies using GPW’s non-display data

43

-

-

-

-

Number of licensees using GPW indices as underlying instruments of financial products

18

18

16

17

17

In addition to quotation data, the Company also provided data vendors in 2016 with reports of issuers listed on NewConnect and Catalyst.

The Company’s information services also include:

delivery of processed data and indicators;

services for licensees issuing financial instruments with the use of GPW indices as underlying instruments;

licences on GPW data for use in the calculation and publication of clients’ proprietary indices;

calculation of indices for clients;

licences for television stations using real-time data feeds for limited presentation in public financial programming.